Monday, August 20, 2012

Atlético Madrid ended last season in some style, just
missing out on a Champions League place after surging up the La Liga table and
then winning a terrific Europa League final 3-0 against Athletic Bilbao with
two goals from their prolific Colombian forward Radamel Falcao, the man known
as “El Tigre”. This was particularly impressive after their faltering start
following the sale of many leading players last summer, including their South
American strikers, Sergio Aguero to Manchester City and Diego Forlán to Inter.

This European success was the second time that Atlético had
triumphed in Europe’s “second” competition in three seasons, as they also secured
the trophy in 2010, when they dashed English hopes by beating Fulham (after overcoming
Liverpool in the semi-final). That was Atlético’s first European silverware for
nearly 50 years and their first trophy of any kind since 1996, when they
memorably won the domestic double.

Although Atlético can legitimately claim to be Spain’s third
biggest club historically, the fact remains that it is many years since they
won most of their nine league titles (and nine Copa
del Rey trophies), leading to their reputation as the great
under-achievers, which is especially poignant for a club with such passionate,
committed support. Their numerous fans have become accustomed to failure, not
least compared to their illustrious neighbours Real Madrid, whom they have not
defeated since 1999. Indeed, Atlético were actually relegated to the Segunda División in
2000, returning to the top flight two years later under the guidance of the
legendary Luis Aragonés.

"Adrián López - one way or another"

As well as managing Atlético in four different spells,
Aragonés was also a long-serving player, scoring the goal in the 1974 European
Cup final against Bayern Munich that so nearly brought the trophy back to the
Vicente Calderón before a last-minute equaliser forced a replay that the
Germans won 4-0.

Fans will hope that the current manager Diego Simeone, also
a much-loved former player, goes on to emulate Aragonés’ feats and rediscovers
the club’s glory days. He certainly made a good start, coming in to replace the
hapless Gregorio Manzano last December, and inspiring a recovery in the second
half of the season. The football may not have been the most attractive to
watch, but there is no doubting the results achieved.

He has established a solid base on which the club can build,
always assuming that they can hang on to their key players, notably Falcao, but
also including the likes of strike partner Adrián, Turkish international Arda
Turan, the uncompromising Uruguayan defender Diego Godin, and Spaniards Gabi,
Juanfran and Mario Suárez.

"Diego Simeone - when the going gets tough..."

That is by no means a given, as nobody can ever be sure of
the direction that Atlético will take, due to their numerous issues off the
pitch. A highly dysfunctional board has taken some bizarre decisions in the
past, leading to some desperate financial problems. Indeed, it is arguable that
one of the main drivers for Simeone’s appointment was the belief that his
popularity with the fans would cause them to stop their protests against the
club’s directors.

Atlético supporters certainly have much to complain about,
as they have suffered from years of poor management (to say the least) ever
since the infamous Jesús Gil became club president in 1987. A man for whom the
description “colourful character” could have been invented, Gil was a
controversial property magnate and politician, who ran the club in his own
inimitable style. In his day job, he was given a five-year prison sentence for
his company’s role in the collapse of a building that resulted in 58 deaths,
though the dictator Franco later pardoned him.

He was also suspended by both UEFA (for calling a referee a
homosexual) and the Spanish FA (for punching another club president), while he
spent millions on bringing star names such as Paolo Futre to Atlético without
much tangible return on the pitch. Even more scandalously, the courts found his
consortium guilty of fraudulently acquiring Atlético Madrid during the club’s 1992
flotation, though they were rescued by a statute of limitations.

"There's only Juanfran"

Things have not improved since Gil’s death in 2004, with
control now residing with his son, Miguel Ángel Gil Marín, who is the majority
shareholder and chief executive, and Enrique Cerezo, the club president. The
mutual antipathy between these two individuals is apparent at every turn with
each taking decisions to deliberately contradict the other.

The club’s shambolic strategy is reflected in the vast
number of managers that have been hired and fired during the Gil era. It is
difficult to keep track of the exact number, but most estimates suggest that
the club has gone through nearly 50 managers in this period, featuring names
like César Luis Menotti, Javier Clemente and Ron Atkinson, including 16 since
1996, the year of their last domestic success. The lack of continuity is
further emphasised by the confused activity in the transfer market with an
average of 14 new players arriving each season.

There is a price to pay for being one of the worst run clubs
in Europe, as evidenced by Atlético’s massive debts, which stood at a barely
credible €514 million in June 2011, around €62 million higher than the previous
year. Notable items included €215 million owed to tax authorities (net €167 million
after deducting tax debtors), €77 million to financial institutions, €55
million for transfer fees and €52 million to staff. Importantly, much of this
debt (€278 million) is short-term in nature, placing even more pressure on
Atlético’s finances.

This is the third highest debt in La Liga, only surpassed by Real Madrid
€590 million and Barcelona €578 million, though both those clubs enjoy
significantly higher revenue. This can be seen by looking at debt coverage,
i.e. how much of the total debt is covered by annual revenue, which is around
80% in the case of the two Spanish giants, but a feeble 19% for Atlético.

Debt is a generic problem for Spanish football clubs, but
the comments from José María Gay de Liébana, a specialist in football finance
from the University of Barcelona, seem particularly pertinent for Atlético:
“Football is a mirror of the general economy in Spain. For years we have been
spending beyond our means, getting deeper and deeper into debt.”

Of course, the most worrying aspect of Atlético’s
indebtedness is the vast amount owed to the taxman, which AS newspaper
estimated towards the end of last year as €155 million, lower than the figure
in the club accounts after the proceeds from the Aguero sale went straight to
the tax authorities to reduce the debt. Even after this payment, Atlético’s tax
debt is substantially higher than the rest of La
Liga with Barcelona the next highest at €48 million and accounts for
more than a third of the total owed by La
Liga clubs – and their accounts for the last four years have still
not been signed-off by the tax authorities.

This unhappy, some might say immoral, state of affairs has
not escaped the attention of Uli Hoeness, Bayern Munich’s inimitable club
president, who boomed, “This is unthinkable. We pay them hundreds of millions
to get them out the shit and then the clubs don’t pay their debts.”

Like many other Spanish clubs, Atlético have agreed a
repayment schedule with the tax authorities. It had been mistakenly believed
that the agreement was to pay the taxman half of any revenue received from
player sales, but the club has to actually pay €15 million every September,
regardless of any transfer activity, which helps explain the annual summer
outgoings.

Even this arrangement may come under pressure after recent
comments from the European Commission, which has suggested that delayed tax
payments might represent a form of improper state aid. Indeed, in April the
Spanish government and football league (LFP) agreed new rules for clubs to
settle tax debts, including clubs being obliged to set aside 35% of TV revenue
as a guarantee against tax debts from the 2014/15 season and maybe even being
forced to sell players to raise funds. Ultimately, clubs could even be barred
from competitions.

Gil Marin provided a spirited defence of Atlético’s
position, “This arrangement has been going on for years. Other teams have bank
debt, we have tax debt.” He continued, “It can’t be seen as an advantage to pay
5% interest and meet all payment deadlines. It would only be an advantage if
they gave us a discount or we didn’t pay any interest.”

"Gabi says"

At first glance, Atlético’s balance sheet does not look too
bad with €31 million of net assets, but if you poke around a little under the
bonnet, a few problems emerge. First, the club has negative working capital of
€113 million, meaning that it could face severe liquidity issues, unless it can
reach agreement with its principal creditors. This was recognised by director
Fernando García Abásolo last year, “The club is not bankrupt, but it no longer
has the room to increase the debt because it could reach a situation where
there is a lack of liquidity, and that could lead to bankruptcy.”

The club states that this is due to their investments in
players in order to secure European qualification and is a “situation common to
the vast majority of football clubs.” While it is true that few clubs are
shining examples of financial probity, not many are in such a bad position as
Atlético, even though the directors have given their commitment to cover any
cash shortfalls that may arise in future (as they have done in the past).

Furthermore, the balance sheet is inflated by €240 million
of debtors that relate to the new stadium project, whereby Atlético’s sale of
the land around the Calderón will fund the development. The accounting for this
is complex and fairly opaque, so much so that the auditors make no fewer than four
“exception” comments about these transactions, though they did ultimately
sign-off the accounts.

"Diego Godin - please don't go"

There have been a couple of incidents of late payments
reported recently which may be indicative of some wider issues. First, Diego
the midfielder on loan from Wolfsburg last season filed a claim for unpaid
wages. Although the amount he claimed was relatively small, the €52 million of
debt owed to staff represents 81% of the annual wage bill of €64 million, which
is far from trivial.

Similarly, Marca have written that Atlético are behind in
their payment schedule to Porto for Falcao’s transfer. This cost €40 million
(plus €7 million in incentives) and included €18 million to be paid in two
annual instalments of €9 million with the newspaper claiming that only €6.5
million had been paid this year, which could lead to Atlético being reported to
FIFA (and a potential transfer ban).

So how did Atlético find themselves in such an awful
financial predicament?

Obviously the lack of sporting success has not helped, e.g.
Gil Marin revealed that €46 million of the tax debt arose from their time in
the second division, when they stopped paying tax, while a further €50 million
was charged following tax reviews, largely due to profits booked for property
sales.

However, much of the debt is down to rank poor management,
in particular some highly questionable purchases in the transfer market, where
they splashed out €165 million (net) in the seven years up to 2008/09, even
after selling the fans’ idol Fernando Torres to Liverpool for €38 million in
2007. Since those heady days, the cold wind of reality has blown through the
club’s corridors, as they have generated net sales proceeds of €21 million in
the last four years.

Last season they received an incredible €88 million from
selling players, largely Aguero €45 million, David De Gea (to Manchester
United) €20 million, Elias (to Sporting Lisbon) €8.8 million and Forlán €5
million. However, they were still spending with Falcao representing one of the
most expensive purchases of the summer, though half of this was funded by a an
investment fund with super agent Jorge Mendes playing a key role (as he did
with a couple of other buys: Elias and Silvio).

So far this summer the club has been even more frugal with
the only outlay being the €1 million paid to Getafe for Cata Diaz with the
other arrivals coming in on a free transfer, including Emre from Fenerbahce. On
the other hand, there have already been two big money sales with Argentine
midfielder Eduardo Salvio moving to Benfica for €11 million and promising young
midfielder Álvaro Domínguez joining Borussia Mönchengladbach for €7 million.
This new austere approach is also evidenced by greater use of the loan system
with the aforementioned Diego and Belgian goalkeeper Thibaut Courtois from
Chelsea.

It is also highlighted by looking at the net transfer spend
of the leading La Liga
clubs in the last four years, where the only club spending less (i.e. selling
more) than Atlético was Valencia, also beset with debt problems. In stark
contrast to Atlético’s net sales of €21 million, Barcelona’s net spend was €160
million, while Real Madrid indulged themselves to the extent of a hefty €285
million.

Looking at the profit and loss account, it is not surprising
that Atlético have not been so active in the transfer market, as they have
reported losses in each of the past three seasons, including €6 million in
2010/11 on revenue of almost exactly €100 million. That said, on paper the
losses do not look overly dramatic with the largest being €10.8 million in
2008/09 and just €75,000 in 2009/10. Furthermore, small profits were made in the
preceding three seasons.

However, the impact of tax credits has been significant with
€5.9 million in 2010/11 and €17.7 million in 2008/09. Excluding these, the
club’s pre-tax losses become much larger, e.g. €11.8 million in 2010/11 and a
sizeable €28.4 million two years earlier.

But, I hear you cry, Atlético did at least break even on a
pre-tax basis in 2009/10, which is absolutely true, but there is another way of
looking at this, namely that in their most successful season for ages, when
they qualified for the Champions League and won the Europa League (after
parachuting in), they still could not make any money.

Nevertheless, compared to some of the gigantic losses at
other clubs, these bottom line figures are not that terrible, though they do
disguise some worrying points.

Interest payments on the debt weighs heavily on the
accounts, rising from €8.2 net payable in 2009/10 to €30.4 million in 2010/11,
comprising €10.3 million received from investments and €40.6 million on debts
to third parties. In fact, Atlético have had to pay a very high €68 million net
interest in the last five years. To place that into context, only Valencia have
had to pay a similar amount, while Barcelona (€52 million) and Real Madrid (€24
million) have paid much less, despite their larger debt levels.

However, the most important point to appreciate about
Atlético’s losses is that they would be much higher without the inclusion of
substantial asset sales, both in terms of players and property. The former was
demonstrated last season with net profits on player sales of €38 million (€43
million profits less €5 million losses). Excluding this (and other unexplained
exceptional losses of €5 million), the reported pre-tax loss of €12 million
would have been a far more unhealthy €45 million.

In the same way, the accounts for many years have included
huge profits on property sales (€46 million in 2005/06, €58 million in 2007/08
and €10 million in 2008/09). These are not fully explained, but the point is
clear, namely that Atlético’s underlying losses are very large, adding up to a
deeply concerning €229 million in the last six seasons, averaging nearly €40
million a season. The figure would have been even worse without the relatively
small “real” loss of €4 million in 2009/10, which highlights the importance of
European success to Atlético’s business model, assuming that they do not want
to sell their best players each season.

With no European qualification, Atlético clearly make large
losses at an operating level, amounting to €156 million over the last six
years. The one year where they made money was unsurprisingly 2009/10 with€4.1 million operating profit, though
this included €29.6 million of revenue from Europe. Excluding this windfall,
there would once again have been a large operating loss of €25.5 million.

The slightly encouraging news is that the club has made cash
profits for the last three seasons, with EBITDA (Earnings Before Interest,
Taxation, Depreciation and Amortisation) reaching €10.4 million in 2010/11,
even with relatively small European revenue of €4.4 million. This is mainly due
to operating expenses being kept under control, especially wages, which
actually fell €3 million in the last two years.

That said, the great investor (and third richest man in the
world) Warren Buffett once cautioned, “References to EBITDA make us shudder. It
makes sense only if you think that capital expenditure is funded by the tooth
fairy.” As we have seen, this is particularly relevant to Atlético with their
large debt leading to high interest charges.

In fairness to Atlético, very few Spanish clubs are doing
well financially. According to a study by the University of Barcelona, only
eight of the 20 clubs in La
Liga are profitable – and just one of these reported a profit higher
than €5 million with Real Madrid powering to a €47 million profit. Although
Barcelona made a €12 million loss in 2010/11, they have since announced record
profits of €49 million for 2011/12. While the two Spanish giants gorge
themselves, the other teams are starving. As Professor Gay said, “Everyone is
concentrated on Madrid and Barca, who are then kings of the banquet, while the
rest live an uncertain future.”

That dominance is easily seen by considering revenue of the La Liga clubs. In
2010/11 Atlético generated €100 million, which placed them fourth highest in
Spain, €20 million below Valencia, the difference being entirely due to
Champions League money. In fact, Atlético are one of only four clubs in La Liga that earn
more than €100 million revenue, with the remaining clubs considerably behind
them with the next highest being Sevilla €83 million, Villarreal €59 million
and Athletic Bilbao €58 million.

That’s not too bad, you might think, until you look at the
enormous amounts earned by Real Madrid (€479 million) and Barcelona (€451
million). In other words, they earn at least €350 million more a season – every
season. That’s not exactly a fair fight: it’s as if Atlético have brought a
knife, while the top two are armed with a gun (and a bloody big one at that).
And just to twist that knife a little more, Barcelona recently announced record
revenue for 2011/12 of €476 million.

The dispiriting thing is that Atlético’s revenue is actually
good enough to put them in 23rd position in Deloitte’s European Money League,
just €15 million behind Napoli, who gave such a good account of themselves in
last season’s Champion League. However, in this era of stratospheric TV deals
and commercial money-spinners, having reasonably good revenue is no longer
sufficient, as a select few are now out of sight.

This trend can be clearly seen by looking at the revenue
growth of some of Spain’s leading clubs in the last three years. Atlético’s
performance is far from shabby, as they have grown their revenue by 27% (or €21
million), which is better than all their peers. Only Valencia have come close
with €16 million growth in that time, while Athletic Bilbao’s revenue has been
flat, and it has actually declined at Sevilla and Villarreal.

Great stuff, but then take a look at Barcelona and Real
Madrid, who have increased their revenue by €142 million and €113 million
respectively. In short, the gap between the aristocracy and the “commoners” is
already colossal – and it’s getting wider every year. The chances of Atlético
(or Valencia, Athletic, Sevilla or anyone else) mounting a sustained challenge
in Spain are virtually zero, unless one of the big two somehow collapses.

Like most other clubs, Atlético’s revenue growth has been
largely dependent on television, rising from €18 million in 2006 to €41 million
in 2011 on the back of larger domestic deals. That actually represents a €21
million reduction from the €62 million registered in 2010, which was boosted by
European success. If match day revenue is also included, revenue from European competitions
fell €25 million between 2010 and 2011, which exactly matches the club’s
decrease in total revenue from €125 million to €100 million.

Broadcasting is now worth 41% of Atlético’s revenue and
accounted for an even larger proportion (50%) when Champions League money was
received. In fairness to Atlético, they have also managed to grow their other
revenue streams with match day income rising €13 million (79%) from €17 million
to €30 million since 2006 and commercial revenue increasing by €10 million
(54%) from €19 million to €29 million in the same period.

Despite increases in television revenue in 2011/12,
Atlético’s €46 million is still a fraction of the €140 million that Real Madrid
and Barcelona each receive, even though it is the fourth highest in the league,
just behind Valencia’s €48 million and well ahead of Sevilla’s €31 million.
Unlike all the other major European leagues which employ a form of collective
selling, Spanish clubs uniquely market their broadcast rights on an individual
basis, so Real Madrid and Barcelona on their own receive over 40% of the total
TV money in La Liga
or 11 times as much as the €13 million given to the bottom club.

This produces the most uneven playing field in Europe and
compares unfavourably to the 1.5 multiple in the Premier League between first
and last clubs. Looked at another way, Atlético, who finished fifth in the
Spanish league, received less money than Wolves, the team that finished bottom
of the Premier League. As Espanyol’s sporting director, Ramon Planes, said,
“The Liga is abandoning its status as a top level tournament, because of the
huge difference in economic revenues.”

This is why the majority of La
Liga clubs have been pushing for a more equitable distribution of
income from television rights, including Atlético, whose president Gil Marin
commented, “We want a league that is solvent and competitive. To achieve that,
it is fundamental that the gap in budgets and revenues is narrowed and there is
a fairer distribution of TV rights. Only in that way can a more just, more
competitive and more attractive league be achieved.”

The current approach of “every man for himself” really only
benefits the big two and undermines the overall potential of La Liga, as noted by
Professor Gay, who suggested that “clubs never think about how to maximise
their collective worth.” This is a valid point, given that La Liga’s TV rights
revenue of €0.6 billion is a long way behind the Premier League’s current €1.4
billion (rising to an estimated €2.2 billion in 2014). In fact, they have now
been overtaken by the Bundesliga
(€0.7 billion) and Serie
A, whose return to a collective deal helped grow TV rights to just
under €1 billion.

As well as more revenue, this might also help clubs like
Atlético plan for the future with more certainty, as noted by Gil Marin,
“Because there is no ordered model for exploiting TV rights, the clubs have to
wait until just before the championship begins to see if the broadcasters can
agree. The uncertainty means it’s impossible to set out any social, sporting,
commercial or economic strategy for the club.” Indeed, the clubs could get
caught in the crossfire of the latest disagreement between pay-TV operator
Prisa and the Mediapro agency.

Atlético’s television revenue for 2010/11 included just €2.9
million from the Europa League, which was a sizeable decrease on the €21.4
million received the previous season from Europe (Champions League €15.1
million plus Europa League €6.4 million). This will rise again to €10.5 million
in 2011/12 following the Europa League victory, though is still much less than
the money received by Barcelona (€40.6 million) and Real Madrid (€38.4 million)
in the Champions League – and indeed less than the other Spanish
representatives: Valencia €18.8 million, Villarreal €13.9 million.

This underlines the importance of qualifying for Europe’s
flagship tournament, especially as prize money will increase from next season.

Atlético are the third best-supported club in Spain with an
average attendance last season of 43,000, only behind Barcelona 75,800 and Real
Madrid 74,600. In fact, that fabulous support base has been very loyal over the
years with attendances surpassing 42,000 even in the two years in the second
division.

In 2010/11 this produced match day revenue of €30 million,
better than eight of the top 20 clubs in Deloitte’s Money League. That’s not
bad at all, but (stop me if you’ve heard this one before) pales into
insignificance compared to Real Madrid’s €124 million and Barcelona’s €111
million (both around four times as much). On the other hand, 13 La Liga clubs earn
less than €10 million match day income, so Atlético cannot complain too loudly
about unfair competition – it works both ways.

It would be difficult to raise ticket prices, given the dire
straits of the Spanish economy, including a very high unemployment rate,
especially among the country’s youth, but the club hopes for “ a significant
increase in income” when they move to a new stadium that should bring “a new
future for Atlético Madrid.” Although it will hurt to leave a stadium so
steeped in history as the Vicente Calderón, taking away some of the club’s
unique identity, a new multi-purpose stadium with more executive boxes and
commercial areas should indeed increase revenue, though this has not been
quantified.

The stadium capacity should rise from the current 55,000 to
67,500 in a site that was designated as part of Madrid’s unsuccessful 2016
Olympics bid on the other side of the town. Atlético’s website states that it
will cost around €200 million to build, which has already been paid by the sale
of land around the Calderón to the brewers Mahou for development. At one stage,
it looked like Atlético would make a large profit on this project, but it now
seems like they will essentially just cover their costs.

Discussions on this project started in 2007, but final
planning permission was only received in late 2011 for a project involving new
road access (and the burial of the M-30). Although club president Enrique
Cerezo suggested last year that the new stadium would be ready for the 2014/15
season, it now looks like 2015/16 may be a more realistic deadline.

Naming rights have been mentioned, but it is fair to say
that most Spanish clubs are struggling commercially. It is the same old story
here with the big two once again dominating. Atlético’s commercial revenue of
€29 million is actually the best of the rest, but is at least €125 million less
than Real Madrid and Barcelona. In fact, Real Madrid’s €172 million is about
the same as all the other La
Liga clubs combined (except Barcelona).

It’s not going to get any better in the short-term for
Atlético, as they lost their main shirt sponsor Kia, who had been paying €7
million a season, at the end of 2010/11. At the time, President Cerezo claimed,
“our jersey is worth between 5 and 8 million euros”, but no permanent
replacement has been found, though Kyocera still sponsor the back of the shirt.
Instead, Atlético have been forced to adopt a piecemeal approach, e.g. last
season there were deals with Colombia Pictures whereby a different film was
promoted each week; and Rixos Hotels for eight of the last nine games. Now
Huawei Telecomms, having sponsored last season’s derby, will be sponsors for
the first three games of this season.

While Barcelona have secured a €30 million contract with the
Qatar Foundation and Real Madrid receive €20+ million from Bwin, almost half of
the clubs in La Liga
started last season without a shirt sponsor, including Valencia, Sevilla and
Villarreal. Indeed, excluding the big two, the total shirt sponsorship in the
Spanish top tier only amounts to around €10 million. As club director García
Abásolo said, “There are sponsors who prefer to be the third of Madrid or Barca
(rather) than the first of another club.”

To their credit, Atlético have done well in controlling the
wage bill, as can be seen by the important wages to turnover ratio falling from
90% in 2006 to 64% in 2011 (and as low as 49% in 2010). In this period, revenue
rose €46 million (86%), while wages only grew by €16 million (32%).

Their wage bill of €64 million is still the third highest in
Spain, just ahead of Valencia €61 million and Sevilla €57 million. The revenue
theme is thus repeated in costs, as Atlético are once again only lower than the
big two, but significantly lower, with Barcelona spending €241 million and Real
Madrid €216 million.

It should be noted that Atlético’s wage bill grew €3 million
in 2011, despite the €25 million drop in revenue, so there is still work to do
in this area. They could start by looking at the salary of Gil Marin, which has
averaged €1.2 million a year for the last three years, even though club
statutes prohibit such payments if the club makes losses.

Whatever. The critical point here is that the big two have
(understandably) used their growing wealth to spend even more on their players,
a vicious circle that kills off any hope of domestic competition. In the last
four years, the wage bills at most Spanish clubs have hardly grown at all,
while those at Barcelona and Real Madrid have surged (by €86 million and €49
million respectively). In this way, the gap between Atlético and Barcelona has
expanded from €102 million in 2007 to €177 million in 2011, a veritable abyss.

The other major player cost is amortisation, i.e. the annual
cost of writing-down a player’s transfer fee, which has fallen by €15 million
from the peak of €38 million in 2009 to €23 million in 2007, as a result of the
slowdown in the transfer market. In future, this will increase as a result of purchases
like Falcao, but will also fall if there was any amortisation remaining on
players that have departed, so the net effect is likely to be fairly small.

Another headache for Atlético is the implementation of
UEFA’s Financial Fair Play rules that force clubs to live within their means if
they wish to compete in Europe. Allowable losses are an aggregate €45 million
for the first two years (then three years), but this falls to only €5 million
if they are not covered by the owners, which might be an issue for Atlético.

As we have seen, FFP could be problematic, as Atlético’s
2010/11 loss excluding player sales and other exceptional items was €45
million. What this effectively means is that Atlético can only hope to meet the
break-even target by either selling players or qualifying for the Champions
League – though that task should not be beyond them, given Villarreal’s
relegation and Malaga’s internal strife.

It should be noted that the costs of building the new
stadium would be excluded from the FFP calculation, so that will not be an
issue. Similarly, any expenses attributed to youth development are also
excluded, so this should be an area of focus, certainly more than in the past,
when Jesús Gil once actually closed the academy, resulting in Raúl moving to Real
Madrid, where he proceeded to score over 200 goals. Although things have
improved since then with the likes of De Gea and Alvaro Dominguez coming
through (and being sold for large fees), there is still room for improvement.

Atlético’s financial future is also inextricably linked to
how Spanish football fares in general – and the picture does not look good.
Paradoxically, while results on the pitch have never been better for the
Spanish national team and their clubs in Europe (five of the eight semi-finalists
in Europe last season came from La
Liga), most clubs are struggling off the pitch. In fact, a quarter
of the clubs in the top division are in bankruptcy protection, while the
beginning of last season was delayed by a players’ strike over unpaid wages and
there were threats of similar this season, this time over TV rights and
schedules.

Spanish football is tolling under the burden of debt, which
has reached €3.5 billion for the 20 clubs in La
Liga, more than double the annual revenue of €1.7 billion. That
said, this is not a new issue with debt being about the same level for the last
four years, a sign that football remains a remarkably resilient industry.

However, there is no room for complacency and the Spanish
Football League (LFP) has now taken action. Up until recently, it was unable to
impose any meaningful sanctions on financial miscreants, but a new law came
into force in January 2012 that now permits the authorities to relegate a club
in administration – though whether they have the stomach for a confrontation
with a major club’s supporters is debatable.

"Turan - the Arda they come"

Although Atlético Madrid are a good club with great fans,
their financial disadvantages (even after attempts to put their house in
order), compounded by an almost unparalleled ability to shoot themselves in the
foot, mean that they are unlikely to break the duopoly at the top of La Liga in the near
future.

However, they have a realistic chance of qualifying for the
Champions League this season, which would go a long way to help resolve their
money issues – just so long as the tax authorities (and other debtors) remain patient
and don’t call in their debts.

Praise for The Swiss Ramble

"Blogger of the Year 2013 - It’s testament to the effect that Kieron has had on the blogosphere that so many fans take his word as gospel. Putting to use his career in the world of finance, his insights into balance sheets and simple explanations of complex ideas appeal to the hardcore financial whizz and casual fan alike." - The Football Supporters' Federation